In Graham v Dunkley, 50 AD3d 55 (2nd Dept. 2008), the Appellate Division, Second Department, held that "the Graves Amendment was a constitutional exercise of congressional power pursuant to the Commerce Clause of the United States Constitution." Since that decision was issued, injured parties have continued to challenge both the constitutionality and application of the Graves Amendment to New York personal injury actions against vehicle renters and lessors.

The Graves Amendment exempts an "owner (or an affiliate of the owner) ... engaged in the trade or business of renting or leasing motor vehicles" from vicarious liability for injuries or damages caused by the negligent operation of the rented or leased vehicle. The question addressed in this case is whether the Graves Amendment applies to an entity that it not the offending vehicle's actual owner and lessor, but is affiliated with and related to the owner/lessor.

Gluck was a passenger in defendant Nebgen's car, which collided with a vehicle operated by defendant Turco. Turco's motor vehicle allegedly was leased from defendant NILT, Inc., which was the title owner of that vehicle. NILT, Inc. is the trustee of of Nissan-Inifinit LT, a Delaware statutory trust. Gluck brought this personal injury action, and NILT moved to dismiss plaintiffs' complaint pursuant to CPLR Rule 3211(a)(7), asserting that it could not be held vicariously liable for Turco's alleged negligence by reason of the Graves Amendment, which preempted New York Vehicle & Traffic Law § 388. Plaintiffs opposed NILT's motion on two grounds: (1) that the Graves Amendment did not apply because NILT neither itself leased the Turco vehicle nor is in the business of leasing vehicles; and (2) that the Graves Amendment violates the Commerce Clause of the United States Constitution.

An employee of Nissan North America testified at an examination before trial that NILT, Inc., was a subsidiary of Nissan North America, and that NILT, Inc., was the trustee of NILT Trust, the owner of Nissan-Infiniti LT. He also testified that NILT Trust is owned by Nissan Motor Acceptance Corporation, which relies on dealers to originate leases directly to and with consumers. Once a consumer leases a vehicle, the lease is purchased by Nissan-Infiniti LT. The Nissan employee testified that as trustee for Nissan-Infiniti LT, NILT, Inc., was not directly involved in the practice of leasing automobiles to the ultimate consumer. NILT, Inc.'s main purpose was to acquire motor vehicle titles from Nissan Motor Acceptance Corp. in order to allow it to raise capital for the funding of the lease finance business. After Turco leased her vehicle from Smithtown Nissan, the lease was assigned to Nissan-Infiniti LT, who by way of the NILT Trust, is owned by NILT, Inc.

In an affidavit submitted in support of NILT, Inc.'s 3211(a)(7) motion, it was explained that the primary purpose of the "originating" or "titling" trusts commonly utilized in the automotive leasing industry is to isolate the ownership of the lease contracts in the event of creditors rights actions against a non-bank corporation engaged in the manufacture or leasing of motor vehicles, and that without such trusts, the funding of motor vehicle lease contracts to consumers would be considerably more expensive or unavailable.

Here, deposition testimony by Alan Hunn indicates that NILT is the owner of Nissan-Infiniti LT whose primary role is to purchase customer leases directly from Nissan dealerships. Mr. Hunn testified that by purchasing the motor vehicle titles, NILT allows Nissan-Infiniti LT to raise capital for the funding of the lease financing business. NILT's expert explained that as an "originating trust", NILT is indispensable to the leasing trade since it lowers Nissan-Infiniti's costs to consumers. Plaintiffs' restrictive interpretation of the Act, as relating only to those businesses which directly lease a car to the consumer, is belied by the Act's attempt to effect an industry-wide reformation and deliver lower costs to the consumer. Plaintiffs' interpretation of the Act would negate its broad aim and ignore NILT's integral role in the assumption of leases from Nissan dealerships. Under these circumstances NILT is unmistakably among those affiliates targeted by the Act. Moreover, the instant action is distinguishable from Zizerski v Life Quality Motor Sales, NYLJ October 27, 2008, Kings County. Unlike Zizerski where the Court refused to extend the protection of the Graves Act to the defendants because they provided defendants with a loaner rather than a leased vehicle, here it is undisputed that the car provided to defendant Turco was a leased motor vehicle.

Plaintiffs appealed the dismissal of their complaint against NILT, Inc., and the Appellate Division, Second Department, AFFIRMED, holding:

The Supreme Court properly granted that branch of the motion of the defendant NILT, Inc. (hereinafter the respondent), which was to dismiss the complaint insofar as asserted against it pursuant to CPLR 3211(a)(7). The respondent showed that it was an "owner (or an affiliate of the owner) . . . engaged in the trade or business of renting or leasing motor vehicles" (49 USC § 30106). Since there are no allegations of negligence or wrongdoing on its part, the respondent was entitled to dismissal of the complaint insofar as asserted against it for failure to state a cause of action (see 49 USC § 30106; Graham v Dunkley, 50 AD3d 55, 58). The plaintiffs' cross motion also was properly denied.

The Second Department also rejected "[t]he plaintiffs' remaining contention [as being] without merit (see Graham v Dunkley, 50 AD3d at 58)." That remaining contention was the plaintiffs' additional argument that the Graves Amendment is unconstitutional. By citing page 58 of its 2008 decision in Graham v. Dunkley, the Second Department implicitly reaffirmed its finding that the Graves Amendment is a constitutional exercise of congressional power pursuant to the Commerce Clause of the United States Constitution.

In Lang v Hanover Ins. Co., 3 NY3d 350 (Ct. Apps. 2004), the New York Court of Appeals held that without contractual privity, an injured party may not bring a direct suit against an alleged tortfeasor's liability insurer before the injured party obtains a money judgment against the tortfeasor. The Court noted that

Insurance Law § 3420(b)(1) ... grants an injured party a right to sue the tortfeasor's insurer, but only under limited circumstances—the injured party must first obtain a judgment against the tortfeasor, serve the insurance company with a copy of the judgment [pursuant to Insurance Law § 3420(a)(2)] and await payment for 30 days. Compliance with these requirements is a condition precedent to a direct action against the insurance company.

National Union brought this action in the New York Court of Claims as subrogee of its insureds, Chase Manhattan Bank and Morse Diesel International, against the State Insurance Fund, which insured Red Ball Interior Demolition Corporation. Although National Union argued that this action was not brought under Insurance Law §§ 3420(a)(2) and (b)(1), National Union's initiatory pleadings relied on Insurance Law § 3420(a)(2). Both parties moved for summary judgment, and the Court of Claims granted the State Insurance Fund's motion.

In AFFIRMING the lower court's order granting summary judgment to the State Insurance Fund, the Appellate Division, First Department, held:

the State Insurance Fund is exempt from actions brought pursuant to Insurance Law §§ 3420(a)(2) and (b)(1) due to Insurance Law § 1108(c); and

even if the State Insurance Fund could be sued directly pursuant to those statutes, National Union's subrogors had not obtained a money judgment against the State Insurance Fund's insured, the alleged wrongdoer. The Court of Appeals' ruling in Lang v. Hanover applies to actions commenced both before and after that 2004 decision.

Contrary to claimant's contention, this is an action under Insurance Law § 3420. In both its motion for leave to file a late notice of claim and its amended claim, claimant relied on Insurance Law § 3420(a)(2). Furthermore, "the subrogee possesses only such rights as the subrogor possessed, with no enlargement or diminution" (Allstate Ins. Co. v Stein, 1 NY3d 416, 421 [2004] [internal quotation marks and citation omitted]). Under the common law, the subrogors (Chase Manhattan Bank and Morse Diesel International) would have been able to sue Red Ball Interior Demolition Corp. (the alleged wrongdoer), but they would not have been able to sue the State Insurance Fund (Red Ball's insurer), with whom they had no contractual relationship (see Lang v Hanover Ins. Co., 3 NY3d 350, 353 [2004]). Like claimant, Chase and Morse Diesel would have had to use Insurance Law § 3420 to sue the State Insurance Fund. However, "the State Insurance Fund is exempt from the requirements of Insurance Law § 3420(a) and (b)" due to Insurance Law § 1108(c) (seeKenmore-Tonawanda School Dist. v State of New York, 38 AD3d 203, 203 [2007], lv denied 10 NY3d 702 [2008]), and we decline to depart from this precedent, which the Court of Appeals chose not to review.

Even if, arguendo, Insurance Law § 3420 applied to the State Insurance Fund, Chase and Morse Diesel did not obtain a judgment against Red Ball, which is a condition precedent to a direct suit against Red Ball's insurer (see Lang, 3 NY3d at 352, 354). Contrary to claimant's contention, Lang is applicable even though the claim was filed before Lang was decided (see Weierheiser v Hermitage Ins. Co., 17 AD3d 1133, 1134 [2005]; see also Geissler v Liberty Mut. Ins. Co., 23 AD3d 432, 433 [2005]). Furthermore, we decline to consider claimant's argument, made for the first time in its reply brief on appeal, that we should hold this appeal in abeyance while it attempts to obtain a money judgment. Although orders are sometimes treated as judgments (see Matter of New York State Crime Victims Bd. v Gordon, 66 AD3d 1213, 1214 [2009]), the kind of order that Gordon permitted to be treated as a judgment was one directing the payment of money (id. at 1214-1215). By contrast, the order obtained by Chase and Morse Diesel set the matter down for an inquest, which never occurred.

Monday, April 26, 2010

730 days ago I sat down at this computer in my den at home, signed up for Blogger, and started designing this blog. At 7:12 p.m. on Saturday, April 26, 2008, I published my first post on the Bi-Economy decision. That decision has proven to be a recurring and fertile source of material for this blog. 423 labels, 676 posts, 47,435 unique visitors, 88,422 visits, 134,249 page views, and innumerable hours in this green leather high back chair bring us to here. 21.12% of you have visited directly. 25.09% of you have come here from or through other blogs or websites. And 51.22% of you have made it here via a search engine. 201 of you subscribe to this blog through Feedblitz. 265 other regular readers subscribe via RSS readers and similar services. In the past year, "Graves Amendment" has overtaken "Coverage Counsel" and "waiver of subrogation" for the top spot in the top three search terms leading to this blog.

Year #2 continued to be a discovery process for me. Writing is still fun and not fun sometimes. When this blog gets a hit from the New York State Senate less than 24 hours after posting about the bill proposing to expand the categories of serious injuries, I know that a blog can be an excellent vehicle for delivering timely information to influential and meaningful people, companies and entities. Most importantly, however, I've rediscovered the enjoyment of following and reporting a body of law as dynamic and sometimes controversial as insurance coverage law is. I've also continue to meet, either in person or electronically, some very smart, very passionate, and very cool people.

For those of you who may not have been following back in September 2009, I created a "How Best To Use This Blog" post with instructions for maximizing the use and usefulness of this blog. Labels and site search engines will help. The top 10 page views over the past year are:

Thank you as always for visiting and reading. I said at the beginning, at last year's first birthday, and will say again: if you have any suggestions for improving this blog, please let me know. Using the labels and search tools on this blog will make it easier for you to find the information you're looking for. And, if you haven't figured out yet how to subscribe to this blog in an RSS reader, consider subscribing to a weekly email newsletter by clicking here or using the Feedblitz gadget on the right side of this page. Or just keep coming back via the ways in which you've been coming back.

If you like what you see and find this blog to be useful, please let me know, either in a comment or email. And pass a link along to someone who may not yet know about or read Coverage Counsel. Believe it or not, feedback of all kinds helps. It'd be nice to know from other than my regular commenters, that the hours I devote to this free resource are informative and helpful to folks who make, evaluate, pay, deny or litigate insurance claims.

Sunday, April 25, 2010

A bill has been introduced to both houses of the New York state legislature that, if passed, will dramatically expand the number and kind of personal injury lawsuits that can be brought and tried in New York State.

On April 16, 2010, New York State Assembly Bill No. A10739 and Senate Bill No. S07518 were introduced and immediately referred to each body's Insurance Committee. The jointly introduced bill

"[a]dds to the definition of serious injury and relates to determining the sufficiency of the evidence related to the serious injury; question of fact determined by the trier."

New York Insurance Law ­­ § 5104 requires the existence of "serious injury" before a person injured in an automobile accident can sue and recover non-economic loss (emotional distress/pain and suffering) in a negligence action against another motorist or vehicle owner. New York Insurance Law ­­ § 5102 currently sets forth nine categories or types of qualifying serious injuries:

death

dismemberment

significant disfigurement

a fracture

loss of a fetus

permanent loss of use of a body organ, member, function or system

permanent consequential limitation of use of a body organ or member

significant limitation of use of a body function or system

a medically determined injury or impairment of a non-permanent nature which prevents the injured person from performing substantially all of the material acts which constitute such person's usual and customary daily activities for not less than ninety days during the one hundred eighty days immediately following the occurrence of the injury or impairment.

The joint bill proposes to addfour categories or types of qualifying serious injuries to Insurance Law § 5102's definition of "serious injury":

a partial or complete tear or impingement of a nerve, tendon, ligament, muscle or cartilage

injury to any part of the spinal column that results in injury to an intervertebral disc

impingement of the spinal cord, spinal canal, nerve, tendon or muscle

a surgical procedure to any injured part of the body

What's an impingement of a muscle, and why is it added twice? Will strains and sprains qualify? Contusions? Non-herniated but bulging discs? Will sutures qualify as a "surgical procedure"? The imprecision and ambiguity of these proposed additional "serious injury" categories should be embarrassing to the sponsors of this bill.

The "Justification" section of the sponsors' memorandum for the Assembly's proposed bill makes the following argument in support of the bill:

When the legislature originally passed N.Y.S. Ins. Law § 5102, it never intended that New York's citizens would be deprived of their constitutional right to a trial by jury where they actually sustained a serious injury. The judicial transformation and interpretation of this statute has produced overwhelming obstacles never intended by the legislature and has clogged the courts with boilerplate "threshold motions" which monopolize judicial resources.

Over the past twenty years developments in technology have enabled medical practitioners to identify injuries to ligaments, tendons, tissue, nerves and other non-bony structures through the use of CT Scans, MRIs, EMGs and other methods. Prior to these advances in technology significant injuries would not have been revealed or adequately appreciated but they are now readily identifiable, and the seriousness of their effects are understood far better than ever before.

Unfortunately, current law has not kept pace with modern medicine. As a result numerous cases where a serious injury was clearly present have been dismissed because the existing law does not clearly and specifically list and identify such injuries as actionable, regardless of how the injury affected the accident victims' lives.

The proposed amendments would curtail summary dismissal of legitimate cases involving significant injuries not objectively verifiable when the law was originally enacted in 1977. The Courts have been flooded with countless motions and extensive appellate practice on the issue of whether a serious injury was sustained, resulting in unfair and contradictory decisions and the dismissal of meritorious claims. Injured parties in one Judicial Department may have their case dismissed as "non-serious" while in another Judicial Department a case with similar facts is permitted to proceed.

Don't like the courts meddling with the personal injury plaintiffs' lawyers' livelihood? There's a legislative app for that. In addition to seeing to it that nearly every minor, soft-tissue injury that results from a car accident will be actionable, cut the damnable courts out of the picture by outlawing summary judgment on the "serious injury" issue. The jointly introduced bills would add a new section 5102-a to New York's Insurance Law, entitled "Issues of fact and sufficiency of the evidence":

Whether an injury qualifies as a serious injury pursuant to subsection (d) of section five thousand one hundred two of this article shall be a question of fact. Where evidence is offered as to (a) whether an injury qualifies as a serious injury pursuant to subsection (d) of section five thousand one hundred two of this article, or (b) the causation of such injury, the sufficiency of such evidence shall be determined by the trier of fact. Sufficiency and weight of evidence offered, including but not limited to that pertaining to qualitative and/or quantitative assessment of injury, shall be reserved for the trier of fact.

Remarkable. In no other other area of the law is a defendant denied his or her right to make a dispositive motion. The very idea is patently ridiculous as antithetical to the rule of law and function of the judiciary. What about a defendant's constitutional right to not face trial of a frivolous or unmeritorious lawsuit? I suspect § 5102-a may be just a throwaway component inserted into these bills as a bargaining chip the sponsors may be willing to give up in order to obtain passage of the expanded definition of "serious injury". But without a prohibition of summary judgment, the hopelessly vague and imprecise four additional types of serious injuries will likely spawn more, not less, motion and appellate practice.

If passed, the bill would apply immediately to all future actions and retroactively to any actions commenced prior to the act's effective (signing) date and pending on the effective date, where as of such date a trial has not yet commenced and a dispositive motion has not yet been filed. If these bills ever make it out of the insurance committees to the legislature's floor for a vote, expect a deluge of serious injury motions to be filed.

I have an idea. Let's get rid of no-fault altogether in New York. No serious injury threshold. But no pool of $50,000 in basic PIP per person to run up medical bills for unnecessary treatment either. Remove the incentive to bilk no-fault insurers and medically manufacture qualifying serious injuries. Everything gets to trial, but who's going to spot the cost of all those back surgeries of dubious medical necessity and efficacy just to pump up the personal injury settlements or verdicts? Not auto insurers. Maybe the lawsuit funding companies will. And we'll solve the no-fault insurance fraud crisis (see my April 22, 2010 post) in one swell foop. All in favor, say aye.

Update (April 27, 2010, 6:20 a.m.) ~~ For a thoughtful plaintiff's attorney's perspective on this bill, head over to Eric Turkewitz's New York Personal Injury Law Blog. Eric and I appear to agree that the no-fault system is broken, but we differ on whether and, if so, how it can be fixed. No one can legitimately argue with the laudable goal of eliminating inconsistencies in appellate decisions and recognizing that a causally related surgical shoulder or knee is more deserving of admission to court than a broken pinky finger or toe. The proposed additional four categories of serious injuries, however, would make court a general admission event in New York, especially with a repeal of CPLR Rule 3212 only with respect to the "serious injury" threshold issue.

Update (May 11, 2010, 8:12 a.m.) ~~ This past Sunday's Buffalo News featured a front-page article entitled "Thompson legislation stirs new controversy". It seems that the sponsor of the Senate version of this bill, Sen. Antoine Thompson of Buffalo, himself filed a personal injury action on March 3, 2010 for a 25% torn rotator cuff -- an injury that might not qualify as a "serious injury" unless Thompson's bill, which would apply retroactively to any previously commenced lawsuit that has not yet reached trial or for which a summary judgment motion has not yet been filed, is passed. Coincidence or conflict of interest?

On January 3, 2004, Valentine was involved in an automobile accident in Queens with a motor vehicle operated by Rodriguez. The petitioner, AutoOne Insurance Company, insured the Valentine vehicle. Rutgers Casualty Insurance Company insured the Rodriguez vehicle.

In 2005, Rutgers commenced an action in Pennsylvania state court against, among others, Rodriguez and Valentine. AutoOne was not a party to the Pennsylvania action. Rutgers' complaint alleged that Rodriguez had fraudulently represented on his application for insurance that he resided in Pennsylvania and that his vehicle was garaged there. Rutgers sought to have Rodriguez's policy declared void ab initio. The complaint also stated that "[a]ll other defendants named herein are so named FOR THE PURPOSE OF NOTICE ONLY," referring to Valentine and all of the defendants other than Rodriguez.

In 2006, the Pennsylvania state court declared Rodriguez's policy void ab initio upon the default of Rodriguez and granted Rutgers' request to discontinue the Pennsylvania action against all other defendants, including Valentine.

Valentine thereafter amended his supplementary uninsured motorists (SUM) coverage claim to AutoOne and demanded arbitration. In 2008, AutoOne commenced this special proceeding and sought leave to join Rutgers and Rodriguez as proposed additional respondents and temporarily to stay arbitration of Valentine's claim for SUM benefits pending a hearing on the determination of coverage under Rodriguez's policy with Rutgers.

the doctrine of res judicata did not apply to bar relitigation in this proceeding of the issue of insurance coverage for the Rodriguez vehicle under the Rutgers policy because the Pennsylvania court order was not a final judgment on the merits which would be entitled to res judicata effect in this proceeding;

because the discontinuance of Rutgers' Pennsylvania state court action as to Valentine did not state that it was granted with prejudice, it did not operate as an adjudication on the merits for purposes of res judicata application; and

the doctrine of collateral estoppel did not apply to bar relitigation in this proceeding of the insured status of the Rodriguez vehicle because that issue was not actually litigated and decided in the Pennsylvania action, since Rodriguez defaulted and the Pennsylvania court's order voiding his policy ab initio was issued on that basis.

In spite of the regulatory changes that went into effect in 2002, New York no-fault fraud has increased so much over the past several years that, unless checked, may necessitate the Insurance Department's approval of substantial auto premium increases, especially for consumers living in the five boroughs of New York City.

Despite the industry's best efforts to manage an exponential increase in no-fault litigation over the past 15 or so years, the unimpeded inundation of the New York City civil courts with small no-fault suits, most being for far less than what an average New York state resident sues for in a typical small claims court matter, substantially increases no-fault claim costs and indirectly incentivizes fraud.

There can and will be no stopping the alarming upward trend of no-fault insurance fraud in New York unless comprehensive and coordinated regulatory and legislative changes addressing the underwriting, claims, and law enforcements functions are made now. All agree that the goal of these changes should be to ensure that legitimately injured parties and legitimately organized and operating health care providers receive prompt payment of no-fault benefits.

More money and resources would enable law enforcement to prosecute more insurance fraud in New York. Such prosecutions have been very successful in the past, but are complex and expensive.

With Dr. Robert Hartwig's return trip from Europe having been delayed by a volcanic ash cloud over that continent, Dr. Steven Weisbart, chief economist at the Insurance Information Institute (I.I.I.), delivered Dr. Hartwig's presentation entitled "Fraud & The P/C Insurance Industry -- Focus on No-Fault Auto Insurance". According to the I.I.I.'s analysis, fraud and abuse in New York's no-fault auto insurance system equate to about 20 percent of every no-fault claim paid. The presentation's slides can be viewed here:

There has been much debate over whether the New York auto insurance industry has created or claimed a crisis that doesn't exist for the purpose of achieving regulatory and legislative changes favorable to the industry. The I.I.I.'s numbers and statistics, however, are compelling and appear to validate the industry's concerns. Legislative changes aimed only at law enforcement will not solve the problem that no one can deny exists, since prosecutors currently lack sufficient monetary resources to prosecute any sustained volume of insurance fraud cases, and state and local governments themselves are experiencing severe budgetary constraints and reportedly have no more money to commit to the prosecution of insurance fraud.

Band-aids will not stop the bleeding. Something more and more comprehensive is needed. Right now.

Tuesday, April 20, 2010

For those who may have already read my post from last Thursday (the one preceding this post) on New York's new laws regarding compelling appraisal under New York property insurance policies, I've added some of my thoughts on the impact of these legislative changes. If appraisal is something you deal with from time to time, consider this:

Impact of the New Law:

The impact of these statutory changes is severalfold:

Special Proceedings to Compel Appraisal: "In the event of a covered loss", insureds and insurers can now compel the other to proceed with a requested appraisal. What if the insurer believes, however, that part of the insured's claimed loss is not covered? Can a requested appraisal still be compelled? Probably, although the insurer should issue a partial coverage declination letter and reserve its rights to decline payment for items of loss it believes are not covered under the subject insurance policy.

Scope Disputes: Although the new and amended statutory sections should not disturb the 1997 decision I obtained for Nationwide in Kawa v. Nationwide Mut. Fire Ins. Co., 174 Misc.2d 407 (Sup.Ct., Erie Co., 1997), in which the court held, in effect, that the scope of a covered loss is not amenable to appraisal, some will likely argue that scope disputes, i.e., disagreements over whether certain claimed damages are covered as either having been caused by a covered peril or being excluded by the policy, are now amenable to resolution via a compelled appraisal process. I would disagree with such an argument, especially in light of subsection 3808(c)'s "it shall be limited to a determination of actual cash value and/or replacement cost" language. Scope disputes are coverage disputes, and, in my opinion, this new legislation does not require insurers to surrender disputed coverage issues to resolution in the appraisal process. Although it may be difficult to keep disputed scope issues from being included in a compelled appraisal process, insurers should insist on a detailed appraisal award that sets forth each and every item being awarded so that the insurer may pay only what is covered and reaffirm its declination of coverage for what is not.

Replacement Cost: By expressly mentioning "replacement cost", this bill seemingly overrides of the January 2006 Decision and Order of US District Court Judge Charles Siragusa in Woodworth v. Erie Ins. Co., No. 05-CV-6344 CJS, in which the court rejected the plaintiffs' argument that an insured need not actually rebuild before invoking the appraisal clause, instead holding, without citing to any case law, federal or state, that "no appraisal of such a loss can be performed until after the repair or replacement occurs." Of course, some property insurers may continue to argue that RC is not ripe for appraisal, as a coverage issue, until the repairs or replacement is completed. The Woodworth decision has never been favorably cited by any New York state court for this proposition and the validity of its ruling on the appraisability of replacement cost is questionable, especially now with the enactment of Insurance Law § 3408(c). Insurance practitioners and professionals should note that the New York State Insurance Department's Office of General Counsel has previously opined that the repair/replacement cost of a building is amenable to the appraisal process, even in instances where the parties have already agreed on the RC figure but merely disagree on the physical depreciation needed to determine the loss's physical actual cash value (ACV) figure. See, Standard Fire Insurance Policy: Appraisal, New York State Insurance Department Office General Counsel, Opinion No. 01-03-05.

Thursday, April 15, 2010

It took the New York State Legislature eight years, but they've finally overturned me. Okay, maybe not me, but an appellate decision I obtained in 2002 for an insurer client on the issue of whether an insurer could be compelled to proceed with an appraisal under a property insurance policy.

In Fahrenholz v. Security Mut. Ins. Co., 291 876 (4th Dept. 2002), the Appellate Division, Fourth Department, correctly noted, as had then Erie County Supreme Court Justice Eugene Fahey (who now sits on the Fourth Department) on the motion below, that the then-existing version of New York Insurance Law § 3404 "did not eliminate the prohibition against seeking specific performance of the appraisal provision in the standard fire insurance policy set forth in CPLR § 7601". Implying that it did not approve of that statutory prohibition, however, the Fourth Department added that "[f]urther legislative action is required to eliminate that prohibition."

That legislative action has finally occurred with the passage of Senate Bill 2088-A, which took effect immediately upon Governor Paterson's signing of the bill on March 30, 2010. The bill:

amends Insurance Law § 3404(g);

adds new subsection (c) to Insurance Law § 3408; and

amends CPLR § 7601.

________________________________________________________________________
2088--A
Cal. No. 50
2009-2010 Regular Sessions
I N S E N A T E
February 11, 2009
___________
Introduced by Sen. BRESLIN -- read twice and ordered printed, and when
printed to be committed to the Committee on Insurance -- reported
favorably from said committee, ordered to first and second report,
ordered to a third reading, passed by Senate and delivered to the
Assembly, recalled, vote reconsidered, restored to third reading --
reported favorably from said committee and committed to the Committee
on Rules -- committee discharged, bill amended, ordered reprinted as
amended and recommitted to said committee
AN ACT to amend the insurance law and the civil practice law and rules,
in relation to standard fire insurance policies
THE PEOPLE OF THE STATE OF NEW YORK, REPRESENTED IN SENATE AND ASSEM-
BLY, DO ENACT AS FOLLOWS:
1 Section 1. Subsection (g) of section 3404 of the insurance law, as
2 added by chapter 27 of the laws of 1990, is amended to read as follows:
3 (g) Notwithstanding any other provision of law to the contrary, the
4 provisions of the appraisal clause set out on the second page of the
5 standard fire policy and the provisions of section three thousand four
6 hundred eight of this [chapter] ARTICLE, including determinations as to
7 the amount of loss or damage rendered thereunder, shall be binding on
8 all parties to the contract of [fire] insurance evidenced by the policy
9 AND MAY BE ENFORCED BY EITHER THE INSURER OR THE INSURED BY APPLICATION
10 MADE PURSUANT TO SUBSECTION (C) OF SECTION THREE THOUSAND FOUR HUNDRED
11 EIGHT OF THIS ARTICLE.
12 S 2. Section 3408 of the insurance law is amended by adding a new
13 subsection (c) to read as follows:
14 (C) IN THE EVENT OF A COVERED LOSS, WHENEVER AN INSURED OR INSURER
15 FAILS TO PROCEED WITH AN APPRAISAL UPON DEMAND OF THE OTHER, EITHER
16 PARTY MAY APPLY TO THE COURT IN THE MANNER PROVIDED IN SUBSECTION (A) OF
17 THIS SECTION FOR AN ORDER DIRECTING THE OTHER TO COMPLY WITH SUCH
18 DEMAND. IF AN APPRAISAL IS SO ORDERED, IT SHALL BE LIMITED TO A DETERMI-
19 NATION OF ACTUAL CASH VALUE AND/OR REPLACEMENT COST, OR THE AMOUNT OF
EXPLANATION--Matter in ITALICS (underscored) is new; matter in brackets
[ ] is old law to be omitted.
LBD03015-06-9
S. 2088--A 2
1 LOSS WHICH SHALL BE DETERMINED AS SPECIFIED IN THE POLICY AND SHALL
2 PROCEED PURSUANT TO THE TERMS OF THE APPLICABLE APPRAISAL CLAUSE OF THE
3 INSURANCE POLICY AND NOT AS AN ARBITRATION.
4 S 3. Section 7601 of the civil practice law and rules is amended to
5 read as follows:
6 S 7601. Special proceeding to enforce agreement that issue or contro-
7 versy be determined by a person named or to be selected. A special
8 proceeding may be commenced to specifically enforce an agreement[, other
9 than one contained in the standard fire insurance policy of the state,]
10 that a question of valuation, appraisal or other issue or controversy be
11 determined by a person named or to be selected. The court may enforce
12 such an agreement as if it were an arbitration agreement, in which case
13 the proceeding shall be conducted as if brought under article seventy-
14 five OF THIS CHAPTER. Where there is a defense which would require
15 dismissal of an action for breach of the agreement, the proceeding shall
16 be dismissed. PROVIDED, HOWEVER, THAT THIS SECTION SHALL NOT APPLY TO
17 ANY AGREEMENT CONTAINED IN THE STANDARD FIRE INSURANCE POLICY OF THE
18 STATE WITH THE EXCEPTION OF AN ACTION TO ENFORCE THE APPRAISAL CLAUSE
19 PURSUANT TO SECTION THREE THOUSAND FOUR HUNDRED EIGHT OF THE INSURANCE
20 LAW WHICH SHALL NOT BE ENFORCED AS AN ARBITRATION AGREEMENT.
21 S 4. This act shall take effect immediately.

Senate Bill 2088-A was substituted for the Assembly's version, Bill A4758A, which included a sponsor's memo that set forth the following justification for the Assembly's version of the bill:

The appraisal provision required by law in the standard fire insurance policy is a vehicle to assist in quickly settling contract disputes between the insured and insurer, rather than more time consuming litigation. Without the appraisal process the insured is forced to accept an offer from the carrier that they think is deficient or to pursue recovery through litigation which is made cast [sic] prohibitive by the expenses of bringing the action. A 2002 decision of the Supreme Court, Appellate Division, Fourth Department (THOMAS H. FAHRENHOLZ V. SECURITY MUTUAL INSURANCE COMPANY AND THE KREINER COMPANY, INC), pointed out that further legislative action is required to eliminate the prohibition set forth in CPLR 7601 against seeking specific performance of the appraisal provision in the standard fire insurance policy[.] Section 7601 of the Civil Practice Law and Rules which now allows an individual to start a special proceeding to enforce a contract or agreement, exempts fire insurance policies from such proceedings. This bill would remedy the problems inherent in CPLR 7601 by providing clear language to allow either party to utilize the appraisal process more frequently and thereby avoid the high costs and delays inherent in protracted litigation.

Impact of the New Law:

The impact of these statutory changes is severalfold:

Special Proceedings to Compel Appraisal: "In the event of a covered loss", insureds and insurers can now compel the other to proceed with a requested appraisal. What if the insurer believes, however, that part of the insured's claimed loss is not covered? Can a requested appraisal still be compelled? Probably, although the insurer should issue a partial coverage declination letter and reserve its rights to decline payment for items of loss it believes are not covered under the subject insurance policy.

Scope Disputes: Although the new and amended statutory sections should not disturb the 1997 decision I obtained for Nationwide in Kawa v. Nationwide Mut. Fire Ins. Co., 174 Misc.2d 407 (Sup.Ct., Erie Co., 1997), in which the court held, in effect, that the scope of a covered loss is not amenable to appraisal, some will likely argue that scope disputes, i.e., disagreements over whether certain claimed damages are covered as either having been caused by a covered peril or being excluded by the policy, are now amenable to resolution via a compelled appraisal process. I would disagree with such an argument, especially in light of subsection 3808(c)'s "it shall be limited to a determination of actual cash value and/or replacement cost" language. Scope disputes are coverage disputes, and, in my opinion, this new legislation does not require insurers to surrender disputed coverage issues to resolution in the appraisal process. Although it may be difficult to keep disputed scope issues from being included in a compelled appraisal process, insurers should insist on a detailed appraisal award that sets forth each and every item being awarded so that the insurer may pay only what is covered and reaffirm its declination of coverage for what is not.

Replacement Cost: By expressly mentioning "replacement cost", this bill seemingly overrides of the January 2006 Decision and Order of US District Court Judge Charles Siragusa in Woodworth v. Erie Ins. Co., No. 05-CV-6344 CJS, in which the court rejected the plaintiffs' argument that an insured need not actually rebuild before invoking the appraisal clause, instead holding, without citing to any case law, federal or state, that "no appraisal of such a loss can be performed until after the repair or replacement occurs." Of course, some property insurers may continue to argue that RC is not ripe for appraisal, as a coverage issue, until the repairs or replacement is completed. The Woodworth decision has never been favorably cited by any New York state court for this proposition and the validity of its ruling on the appraisability of replacement cost is questionable, especially now with the enactment of Insurance Law § 3408(c). Insurance practitioners and professionals should note that the New York State Insurance Department's Office of General Counsel has previously opined that the repair/replacement cost of a building is amenable to the appraisal process, even in instances where the parties have already agreed on the RC figure but merely disagree on the physical depreciation needed to determine the loss's physical actual cash value (ACV) figure. See, Standard Fire Insurance Policy: Appraisal, New York State Insurance Department Office General Counsel, Opinion No. 01-03-05.

Most legislative changes foster some challenging or defining litigation. These changes likely will be no different in that regard. Expect some litigation in the New York courts over the meaning and impact of these changes, and their effect on the rights of parties to New York property insurance contracts to the appraisal process as an informal dispute-resolution mechanism.

What auto coverages do I need?
New York Law requires all vehicles to carry a minimum amount of liability insurance in the amount of $25,000 for bodily injury to one person, $50,000 for bodily injury to two or more persons (Uninsured motorists protection subject to the same minimums), $10,000 for damage to property of others, and $50,000 for Personal Injury Protection (PIP), also known as No-fault. These minimum coverages are applicable to any one accident. However, depending on your individual situation, it is advisable that you consider increasing the amounts of your liability coverages depending on your needs and the assets you would like to protect.

What optional coverages should I consider purchasing?
You may consider purchasing Comprehensive and Collision coverages to protect against theft or damage to your vehicle. Insurers also offer other valuable coverages to protect you and your family, such as Additional PIP and Supplementary Uninsured/Underinsured Motorists (SUM). It is recommended that you review the Insurance Department’s Consumer Guide to Automobile Insurance, located in the Automobile Insurance Resource Centerat http://www.ins.state.ny.us/cauto.htm, for more general information about auto insurance. You may also consult with the producer or insurer to help determine the types of coverages that are ideal for you.

Am I being placed into the New York Automobile Insurance Plan (NYAIP)?
The NYAIP (also known as the “Assigned Risk Plan”) is a mechanism established by law to offer insurance to applicants that are unable to find insurance in the voluntary market. The NYAIP provides insurance as a last resort, so the premiums are generally higher than insurance obtained through the voluntary market. Consumers who shop around usually get the best insurance value for their money.

Does my policy protect me for liability against a lawsuit from an injured spouse?
The standard auto policy does not automatically provide coverage for an insured against liability due to death of or injuries to a spouse. However, an insured may purchase Supplemental Spousal Liability, which does provide coverage for an insured against liability due to death of or injuries to a spouse.

What effect does my credit history have on my insurance?
Many insurers consider consumer credit information as part of their underwriting process and, for those that do, your credit history may have an affect on the premium charged. However, insurers are prohibited from rejecting an application for insurance solely on the basis of credit information and from using credit in any way to terminate a policy or increase the premium on a renewal policy. Insurers are required to disclose the use of credit information to their policyholders.

Is there a separate fee charged for obtaining the policy?
For policies procured through a broker, the insurance law allows the broker to charge a separate fee as long as you sign a written memorandum agreeing to the specified charge for services performed by the broker in obtaining the policy. For NYAIP policies, the maximum amount of the fee is limited to $50. Keep in mind that you have the option of contacting an insurer that deals directly with the public, to use an insurance agent, or to shop around for a broker that does not charge a fee for such services. It should be noted that unlike a broker, an insurance agent is not allowed to charge a fee for services rendered in the procurement of an insurance policy.

What discounts are available?
While all insurers are required to offer certain mandatory discounts (such as for vehicles equipped with air bags, anti-lock brakes or daytime running lights, or for taking a DMV approved Accident Prevention Course), many insurers have a wide range of other discounts that may also be applicable to you. Ask the insurer or producer about the discounts offered by the insurer to see if you qualify or could qualify for any of the available discounts.

Are there any ways to reduce my premium with regard to youthful drivers?
Various insurers offer discounts geared toward youthful drivers. You may qualify for a reduced premium, if a youthful driver attends college over 100 miles away (i.e. “resident student”), meets certain academic requirements (i.e. “good student”), or has taken a driver’s education course.

Would my policy be non-renewed if I’m involved in an accident or convicted of a moving violation?
This depends on your insurer’s underwriting guidelines. Generally, an insurer is allowed to non-renew up to approximately 2% of its policies per year based on objective criteria. Insurers are required to provide a notice stating the specific reason for non-renewal of the policy. You should also be aware that your premium is likely to be increased for a three-year period via a surcharge if you’re convicted of certain traffic violations (e.g. speeding more than 15 MPH over the legal limit, leaving the scene of an accident without reporting or driving while intoxicated).

Will purchasing a brand new vehicle have an effect on the insurability and cost of a policy?
Premiums charged for physical damage coverages (Collision and Comprehensive) are based on the estimated cost of future claims for damage to, or loss of, the vehicle. Higher-priced vehicles generally cost more to insure. Please refer to Sections IX. Rating Basis For Physical Damage Coverages and X. Difficult-To-Insure Vehicles of the Consumer Guide to Automobile Insurance for specific vehicle information regarding this matter. It is also recommended that you obtain an insurance quote prior to purchasing a new vehicle.

Insurance practitioners and property claims professionals in New York know that most property insurance policies issued in New York or covering New York risks contain a two-year suit limitations period, which requires that there be full compliance with all policy conditions and any suit against the insurer be brought within two years after the occurrence of the loss.

157 Suit. No suit or action on this policy for the recov-
158 ery of any claim shall be sustainable in any
159 court of law or equity unless all the requirements of this policy
160 shall have been complied with, and unless commenced within
161 twenty-four months next after inception of the loss.

Paul and Annette Fabozzi had a homeowners insurance policy with Lexington Insurance Company, which covered their oceanside home on Staten Island, New York. When the house began to collapse as the result of structural damage, they filed a claim with Lexington. Twenty-six months later, Lexington denied coverage and the Fabozzis subsequently sued. Relying on a policy provision that required any suit to be commenced within two years "after the date of loss," Lexington contended that the Fabozzis had waited too long and the limitations period had expired. The federal district court agreed, granted Lexington's motion for summary judgment, and dismissed the suit.

The Fabozzis' appeal to the US Court of Appeals for the Second Circuit turned on the meaning of "date of loss" and whether, under New York law, the policy's limitations period was triggered when the underlying damage to their home occurred, or when all the conditions precedent to bringing suit had been met. In selecting the latter, the Second Circuit concluded:

Because, under longstanding New York law, the limitations period did not begin to run until the Fabozzis' claim against Lexington accrued, rather the date of the accident, we conclude that the action must be remanded. Accordingly, the judgment of the district court is vacated.

The Fabozzis' homeowners policy with Lexington contained the following suit limitations period:

Suit Against Us. No action can be brought unless the policy provisions have been complied with and the action is started within two years after the date of loss. (Emphasis added.)

In vacating the district court's judgment and reinstating the Fabozzis' lawsuit, the United States Court of Appeals for the Second Circuit held that, for purposes of a homeowners insurance policy's two-year Suit Against Us limitations period, the "date of loss" mentioned in that condition is ambiguous and does not mean the date of physical loss or accident, but the date when the insured's claim accrues.

After surveying the historical evolution in the New York state courts of New York's one-, then two-year contractual suit limitations period -- citing and relying heavily on an 1882 New York Court of Appeals' decision for the proposition that "only by exceptionally clear language could an insurer insist that 'the time of the fire should be looked to as the event, from the happening of which the limitation should run'" -- the Second Circuit noted:

Other generic language, such as that in the Fabozzis' policy, does not carry this same meaning; instead, it ties the limitations period to the moment when a claim accrues.

The Second Circuit went on to scuttle 20th-century New York state court case law which has consistently held that modern "date of loss" suit limitation phrases refer to the date of the catastrophe insured against, and not to the accrual date of the insureds' claim against the insurer for failure to pay. Then, citing only federal court case law in support, the Second Circuit pronounced:

The Fabozzis' policy provides that the limitations period would expire "two years after the date of loss," a threshold that New York courts have long regarded as signifying the date on which the claim accrues, not the date on which damage was incurred.

Long as is older, perhaps; not long as in continuously into the past.

With the issuance of this decision, New York homeowners insurers that use policies with "date of loss" in their suit limitations conditions, such as the Suit Against Us condition in the HO-3 policy form, will undoubtedly face challenges in New York state and federal courts on this issue of the deadline for commencing suits for policy benefits against the insurer.

Of course, the potential impact of this decision can be "fixed", if New York property insurers wish to retain what had been a fairly a bright-line two-year suit limitations rule, by amending the policy language either to define "loss" or to substitute words such as "catastrophe or physical damage insured against" for "loss" in the Suit Against Us condition. But should that be necessary? The condition at issue in this case is standard to the standard ISO HO-3 policy. How many time-barred coverage declinations just revived? New York property insurers can expect a good deal of litigation in the New York state courts over this important issue.

(a) A representation is a statement as to past or present fact, made to the insurer by, or by the authority of, the applicant for insurance or the prospective insured, at or before the making of the insurance contract as an inducement to the making thereof. A misrepresentation is a false representation, and the facts misrepresented are those facts which make the representation false.

(b) No misrepresentation shall avoid any contract of insurance or defeat recovery thereunder unless such misrepresentation was material. No misrepresentation shall be deemed material unless knowledge by the insurer of the facts misrepresented would have led to a refusal by the insurer to make such contract.

After Nationwide presumably denied his auto claim, plaintiff commenced this action to recover damages for Nationwide's alleged breach of contract and violation of New York General Business Law § 349. Nationwide moved to strike plaintiff's note of issue, contending that plaintiff had failed to produce certain bank records, credit card statements and cellular phone records demanded by Nationwide in discovery. Supreme Court, Kings County (Spodek, J.) granted Nationwide's motion to the extent of directing plaintiff to produce only some of the demanded records by a certain date, and Nationwide appealed.

In REVERSING that part of the order which had denied Nationwide's motion to compel the production of plaintiff's records for the period of August 1, 2005 through December 31, 2005, the Appellate Division, Second Department, ruled:

However, that branch of the defendant's motion which was to modify the order dated March 6, 2009, to extend the time period of disclosure to include August 1, 2005, through December 31, 2005, should have been granted (see CPLR 5015[a][4]). By submitting the plaintiff's application for insurance dated August 7, 2005, the defendant demonstrated that the disclosure sought for the time period between August 1, 2005, and December 31, 2005, was material and necessary to the defense of this action (see CPLR 3101[a]; Insurance Law § 3105[a]; Cain v United Ins. Co., 232 SC 397, 401, 102 SE2d 360; Barkan v New York Schools Ins. Reciprocal, 65 AD3d 1061, 1064; Tannenbaum v Provident Mut. Life Ins. Co. of Phila., 53 AD2d 86 affd 41 NY2d 1087).

Rate evasion fraud or misrepresentation? The decision does not say, but its citation to Insurance Law § 3105 implies that application misrep was among Nationwide's defenses to the plaintiff's claim.

I've posted several times about New York's legislative about-face on its "no prejudice rule" for late notice liability coverage disclaimers that took effect in January 2009. Most of those posts can be found under this blawg's Direct DJ/Late Notice Bill label, and my April 8, 2009, 35-minute webinar on the new law is available for downloading free of charge here.

It may be some time later this year or early next that we'll begin seeing reported New York cases on the new law and its new issues, including the question of when an insured's or claimant's delay in providing required notice can be said to have "materially impair[ed] the ability of the insurer to investigate or defend the claim." For now, the "old law" late notice cases are running off.

Chapter 388 represents a monumental change for the State of New York. For far too long the state applied a rigid no-prejudice rule when notice to insurers was untimely. The results of this application were anything but fair. The change in the law is welcome and long overdue; however, it is not without its own issues and shortcomings.

There are likely to be a number of highly litigated provisions in chapter 388. New York courts will have many difficult questions to answer. Beyond that, with regard to certain aspects of the law, the New York Legislature might even need to enact additional legislation to remedy the gaps and problems that were created by chapter 388. But the real importance of this legislation will likely be beyond the borders of New York. As the champion for and advocate of the no-prejudice rule, New York led a minority of jurisdictions in its application. However, without the leadership and support of New York, it is likely that the remaining jurisdictions that apply the no-prejudice rule will soon stop doing so. It will likely take time but, as New York insurance law goes, so goes the country.

Since the no-prejudice rule under pre-2009 policies is in hospice and awaiting death, I won't debate Eric on whether that rule was fair or unfair, instead merely noting that our highest state court, the New York Court of Appeals, had had plenty of opportunities to change or abandon that rule since first pronouncing 38 years ago in Sec. Mut. Ins. Co. of N.Y. v. Acker-Fitzsimons Corp., 31 NY2d 436 (1972) that "the insurer need not show prejudice before it can assert the defense of noncompliance." I do agree with Eric, however, that a number of Chapter 388's less than pellucidly clear operative provisions will be litigated extensively in the New York courts.

Thanks for your scholarly and insightful contribution to this subject area, Eric.

An employer shall not be liable for contribution or indemnity to any third person based upon liability for injuries sustained by an employee acting within the scope of his or her employment for such employer unless such third person proves through competent medical evidence that such employee has sustained a "grave injury" which shall mean only one or more of the following: death, permanent and total loss of use or amputation of an arm, leg, hand or foot, loss of multiple fingers, loss of multiple toes, paraplegia or quadriplegia, total and permanent blindness, total and permanent deafness, loss of nose, loss of ear, permanent and severe facial disfigurement, loss of an index finger or an acquired injury to the brain caused by an external physical force resulting in permanent total disability.

Third-party claims for contribution or common law indemnification may not be maintained against an injured person's employer unless there is competent medical proof of one of the enumerated grave injuries. The viability of a third-party claim for contribution or common law indemnification against an injured person's employer will often change the landscape of liability insurance coverage owed to the employer third-party defendant, especially if that party maintains commercial liability and employers liability policies with different insurers.

Nadia Eddine was injured when struck in the head by a sign that fell while she was working behind the Cartier counter at Bloomingdale's in Manhattan. When her direct action against Cartier's owner, Richemont North America, was dismissed, the court converted the other defendants' cross claims for indemnification into a third-party action against Richemont, and denied both that party's original motion and its motion to renew its original motion for summary judgment dismissing those converted cross claims based on the asserted lack of a "grave injury" to Ms. Eddine.

Noting that Richemont had offered no evidence on its original motion to contradict plaintiff's allegations of gravely disabling injury under Workers' Compensation Law § 11, the First Department AFFIRMED the Supreme Court's denial of Richemont's motion to renew based on previously unsubmitted expert reports. The First Department went on, however, to suggest that the even if the lower court had considered those reports, its denial of Richemont's motion to dismiss the defendants' converted cross claims for indemnification was proper because the diametricially opposite opinions of plaintiff's and defendant's examining neuropsychologists presented an issue of fact on the existence of a "grave injury" for the jury:

"Injuries qualifying as grave are narrowly defined" in § 11, and the words in the statute should "be given their plain meaning without resort to forced or unnatural interpretations" (Castro v United Container Mach. Group, 96 NY2d 398, 401 [2001]). Plaintiff's examining neuropsychologist concluded that the patient had suffered "a mild traumatic brain injury," and exhibited no evidence of malingering. By contrast, defendant's examiner found no disability due to any neurological disorder, instead concluding that plaintiff's symptoms were "typical of a somatization [FN1] disorder related to her desperate quest for financial compensation." These starkly contradictory conclusions presented an issue of fact for a jury.

I generally don't like experts using gratuitous adjectives and adverbs in their reports because, as qualifiers, those words usually are subjective in nature and can open the expert up to attack on cross examination. Regardless of whether it was accurate, does anyone other than me think that defendant's examining neuropsychologist perhaps should not have used the term "desperate quest for financial compensation" in his or her report? Wouldn't "claim for financial compensation" have been sufficient to convey the same point?

In the opinion of the First Department, "starkly contradictory" expert opinions on whether a plaintiff has sustained "an acquired injury to the brain caused by an external physical force resulting in permanent total disability" present an issue of fact on the existence of a "grave injury" for a jury.

Those who deal with negligence claims should read this decision from the New York Court of Appeals, issued yesterday, in which the Court held that the Appellate Division properly denied leave to the school district defendant to amend its answer to assert a primary assumption of risk defense against a 12-year-old boy who was seriously injured when he slid down a bannister and fell on school property. The defendant school district argued that the infant plaintiff could be deemed to have consented to in advance to the risks involved in sliding down a bannister and falling from the railing, something which, evidently, had happened to him before.

In his four-judge majority opinion for the Court, Chief Judge Jonathan Lippman reasoned:

No suitably compelling policy justification has been advanced to permit an assertion of assumption of risk in the present circumstances. The injury-producing activity here at issue, referred to by the parties as "horseplay," is not one that recommends itself as worthy of protection, particularly not in its "free and vigorous" incarnation, and there is, moreover, no nexus between the activity and defendants' auspices, except perhaps negligence. This is, in short, not a case in which the defendant solely by reason of having sponsored or otherwise supported some risk-laden but socially valuable voluntary activity has been called to account in damages.

Allowing the defense here would have particularly unfortunate consequences. Little would remain of an educational institution's obligation adequately to supervise the children in its charge (see Mirand v City of New York, 84 NY2d 44, 49 [1994]) if school children could generally be deemed to have consented in advance to risks of their misconduct. Children often act impulsively or without good judgment — that is part of being a child; they do not thereby consent to assume the consequently arising dangers, and it would not be a prudent rule of law that would broadly permit the conclusion that they had done so. If the infant plaintiff's harm is attributable in some measure to his own conduct, and not to negligence on defendants' part, that would be appropriately taken account of within a comparative fault allocation; it is not a predicate upon which an assumption of risk should be permitted to be applied.

We do not hold that children may never assume the risks of activities, such as athletics, in which they freely and knowingly engage, either in or out of school — only that the inference of such an assumption as a ground for exculpation may not be made in their case, or for that matter where adults are concerned, except in the context of pursuits both unusually risky and beneficial that the defendant has in some non-culpable way enabled.

In his concurring opinion, in which Judges Read and Pigott joined, Judge Robert Smith agreed with the Court's answer to the Appellate Division's certified question, but expressed concern over the "sweeping pronouncements" he believes the majority's opinion needlessly makes, characterizing most of the majority's opinion as "extended dictum":

This seems to me an extremely easy case. Assumption of risk cannot possibly be a defense here, because it is absurd to say that a 12-year-old boy "assumed the risk" that his teachers would fail to supervise him. That is a risk a great many children would happily assume, but they are not allowed to assume it for the same reason that the duty to supervise exists in the first place: Children are not mature, and it is for adults, not children, to decide how much supervision they need.

The majority makes this point, which is enough to dispose of the case, near the end of its opinion (majority op at 6: "Little would remain of an educational institution's obligation adequately to supervise the children in its charge . . . if school children could generally be deemed to have consented in advance to risks of their misconduct"). The rest of the majority opinion is, in my view, an extended dictum, which seems to say that the assumption of risk defense is largely if not entirely limited to cases involving "athletic and recreative activities" (majority op at 5).

Judicial rulings should answer more questions than they raise, especially when they come from a state's highest court. It remains to be seen whether this decision will settle or further muddle the question of to what types of activities does New York's common law doctrine of primary assumption of risk apply?

CPLR § 7503(c) has been called "The Shortest Statute of Limitations Known to the Law". Dachs, Norman and Dachs, Jonathan, NYLJ, June 12, 1990. It provides that "[a]n application to stay arbitration must be made by the party served within twenty days after service upon him of the notice or demand [for arbitration or intention to arbitrate], or he shall be so precluded." With respect to UM and SUM arbitration demands, the 20-day period accrues, or begins to run, from the insurer's receipt of the demand for arbitration and ends when the special proceeding is actually commenced by the filing of a petition for a stay. There are a number of exceptions to the 20-day rule that have received extensive treatment in the courts.

Allstate's insured, Jose LeGrand allegedly was injured when the rental car he was driving was rear-ended by a drunk driver in Cancun, Mexico. On September 22, 2009, LeGrand gave Allstate written notice, via facsimile and regular and certified mail, of his intention to assert an uninsured motorist (UM) coverage claim. Allstate acknowledged receipt of that notice the same day, but did not commence this special proceeding to permanently stay the arbitration of LeGrand's UM claim until November 2009, well more than 20 days after Allstate had received LeGrand's notice of intention to make a UM claim. In its petition, Allstate asserted that LeGrand's accident was not a "covered event" because his policy's UM/SUM endorsement provided UM/SUM coverage "only to accidents that occur during the policy period shown in the Declarations, and in the United States, its territories or possessions, or Canada.” As Mexico fell outside the coverage territory for UM/SUM coverage, Allstate argued that LeGrand's UM claim was not arbitrable.

LeGrand opposed Allstate's petition on the ground that Allstate had failed to commence this special proceeding within 20 days of its receipt of LeGrand's notice of intention to make a UM claim, as required by CPLR § 7503(c). In response, Allstate argued that since LeGrand's accident had occurred outside of the UM/SUM coverage territory, there was no coverage and, therefore, no agreement to arbitrate.

New York County Supreme Court Justice Alice Schlesinger disagreed with Allstate's position, finding that the 20-day deadline of CPLR § 7503(c) to commence the special proceeding did apply to Allstate's non-coverage defense:

However, citing to In re Matarasso v. Continental Casualty Co., 56 NY2d 264 (1982), Allstate insists that the twenty-day period does not apply here because of the coverage limitation in the SUM Endorsement. In Matarasso, the Court of Appeals carved out a limited exception to the twenty-day rule with respect to applications under CPLR §7503(c) where no agreement to arbitrate exists. Allstate here contends that because the parties never agreed to arbitrate claims regarding accidents in Mexico, the Matarasso exception
applies and its application is timely.

Allstate’s reliance on Matarasso is misplaced, as the holding is limited to situations where no agreement to arbitrate exists, as opposed to situations like the case at bar where the dispute is whether the arbitration clause applies. The limitation on the Matarasso exception is clear based on the Court‘s discussion of the facts, as well as its unambiguous holding.

* * * * *

Counsel necessarily agree that LeGrand’s policy contains an arbitration clause applicable to uninsured motorist claims. Their dispute is whether LeGrand’s injuries are covered because the accident took place in Mexico and the SUM Endorsement does not include Mexico in the territory covered. The issue relates to the scope of coverage, not to the existence of the arbitration agreement itself. Thus, the Matarasso exception to the twenty-day rule does not apply.

The courts have no discretion to extend the twenty-day rule to permit consideration of an untimely application such as this one. Matarasso, 56 NY2d at 267; State Farm v. Kankam, 3 AD3d 418 (1st Dep't 2004) (petition dismissed as untimely where arbitration agreement existed and the dispute was whether the conditions had been satisfied). Allstate cites Zappone v. Home Ins. Co., 55 NY2d 131 (1982) for the proposition that the courts cannot create coverage where none exists. However, Zappone is wholly inapposite, as there the patty was seeking coverage from Home Insurance Company for a car insured by Aetna, and the issue was what steps, if any, Home Insurance was required to take under the Insurance Law to deny coverage. Neither CPLR §7503(c), nor the issue of timeliness, was even involved.

With due respect to Justice Schlesinger, I believe she's wrong on this one. The UM/SUM endorsement's requirement that an accident take place within the policy period and coverage territory is not akin to a condition precedent or subsequent to coverage, the asserted breach of which would be governed by the 20-day SOL of CPLR § 7503(c). Instead, to me that issue is more like the question of whether someone qualifies as an "insured" under the UM/SUM endorsement's Insuring Agreement, a coverage issue and "Matarasso exception" the New York courts repeatedly have held is not subject to the 20-day SOL of CPLR § 7503(c). See, e.g., Matter of Aetna Cas. & Sur. Co. v. Cartigliano, 178 A.D.2d 472 (2nd Dept. 1991).

Welcome to Coverage Counsel, where we hope you will find timely and useful information regarding New York state and federal insurance coverage cases and issues.

Coverage Counsel is brought to you by the law firm of MURA & STORM, PLLC with a main office in Buffalo, New York. To contact us, call (716) 855-2800 or email Roy Mura, the editor of this blawg.

Broken Links

I started this blog in April 2008, so there's bound to be a few broken links among its posts. If you find a broken link, PLEASE take a moment to email me or post a comment to the post in which the broken link appears and I'll fix it. Thanks!

Subscribe to Coverage Counsel

To receive automatic email updates to Coverage Counsel once a week on Tuesdays, enter your email address and click "Subscribe Me", which will take you to another page. Once you verify your email address by clicking the link in a confirmation email that will be sent to your inbox, you will begin receiving email updates weekly IF there are any new postings. Thanks for your interest in Coverage Counsel!

RSS Feeds

(c) 2015. First, let me congratulate you on finding this disclaimer, all the way down here at the bottom of this page. You're either very thorough, or very bored. Or both.

Either way, this is where I tell you that what I post on this blog or blawg is not intended and should not be considered to be legal advice. No attorney-client relationship is formed either from your finding your way to these pages, posting comments, or receiving comments in reply. If you need or want legal advice, you're welcome to contact and retain me, especially if your question is one relating to insurance coverage. If quality and correctness are optional to you, however, just turn on a TV, open a newspaper, or take a drive along a nearby highway and jot the numbers down of lawyers who probably don't blawg but spend gobs and gobs more on advertising than I do.

Although I try my best to keep the material on these pages current, I cannot promise that all case decisions, statutes and hyperlinks will always be up-to-date. Same goes for content accuracy. I'm nearly, but not always, perfect. Please report dead links or overruled or superseded case decisions to me by clicking here.

Although comments are moderated, I take no responsibility for and do not endorse the viewpoints expressed by this blawg's commenters. The viewpoints and opinions I may myself express in this blawg from time to time are my own and do not necessarily reflect more than one-half of the official position of the law firm of Mura & Storm, PLLC. For the record, I respect all judges, named or unnamed in these posts, though not always their judicial acumen or composition. I reserve the right to revise my thinking and recant my occasional disagreement with the logic or language of a court's decision, especially if IAS matches me with any of the mildly maligned magistrates in one of my clients' litigated matters.